The chart above, depicting the annual returns of the US National Home Price Index, the 10-City Composite, and the 20-City Composite shows all three yielding negative returns as of March 2007. The quarterly S&P/Case-Shiller US National Home Price Index – which covers all nine US Census divisions – was down 0.7% from Q4 2006 and down 1.4% from Q1 2006. This is only the second time in the quarterly national index’s history that the annual growth rate has fallen into negative territory.
The first time was in the period between 1990 and 1991, as depicted in the graph above. „The fall of the National Index into negative territory, after more than 15 years of positive annual growth, is a reaffirmation of the pullback in the US residential real estate market,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. „The National Index was yielding solid returns as recently as a year ago. Q1 2006 growth rates were up 11.5% vs. Q1 2005, a sharp contrast to the returns we are seeing today.” Most US cities are moving deeper into negative terrain.
Detroit and San Diego are yielding the largest annual declines at 8.4% and 6.0%, respectively. But Phoenix and Las Vegas have had the sharpest drop from their peak. Phoenix had reported a growth rate of 49.3% in September 2005, and Las Vegas was up 53.2% in September 2004. The indices are now down 3.0% and down 1.6%, respectively. New home construction in the US may take until 2011 to return to last year’s level, said David Seiders, chief economist for the National Association of Home Builders in Washington.
Monthly construction starts would need to jump by 21% to reach Seiders’s benchmark for full recovery, which is 1.85 million. There were 1.53 million in April, the Commerce Department said. At the height of the five-year housing boom in January 2006, construction began on 2.29 million homes. „We’ve fallen way below trend because we soared way above trend during boom times,” Seiders said in an interview with Bloomberg News. „The upswing will be relatively slow, unlike earlier cycles.” The inventory of unsold homes is the largest since the Washington-based National Association of Realtors started counting them in 1999 and house prices have suffered the steepest drop since the Great Depression, according to the realtors’ group.
Defaults and foreclosures also may rise as about $650 billion of loans to subprime borrowers, those with poor or limited credit histories, reset at higher interest rates by 2009. „We’re still being hit pretty hard by the subprime-related mortgage market problem,” Seiders said. „One of the biggest unknowns right now is how serious the change on the mortgages side will be on home sales.” (finfacts.com)
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